For Start-Ups, Altruism as an Alternative to Acquisition or I.P.O.

For most private companies backed by venture capital or financial sponsors, there are two obvious paths to an exit: sell, or go public as a traditional for-profit corporation.

But a small and growing number of companies are pursuing other alternatives. Some are committing to staying private indefinitely. Others are going public but with a commitment to high ethical and environmental standards. And still others are taking advantage of a new legal structure, the public benefit corporation, that values measures beyond shareholder returns.

Laureate Education is the most recent pioneer in this growing field. The world’s largest profit-seeking higher education provider, Laureate filed for a $1 billion public offering of stock last month.

For a company backed by private equity, in this case the firm Kohlberg Kravis Roberts, which took Laureate private in 2007 for $3.8 billion, this is a fairly standard move. But as it disclosed its I.P.O. plans, Laureate also announced it would become a public benefit corporation.

Public benefit corporations, which are now allowed in several states including Delaware, are structured much as traditional C corporations, which are supposed to maximize value for shareholders. But they require a company to state a higher purpose of sorts, and they allow management and directors to factor in motives besides maximizing shareholder value when making decisions.

Though Laureate is in the controversial business of for-profit education (Corinthian Colleges recently filed for bankruptcy), it professes to have altruistic aspirations. Laureate says its goal is to have a “positive effect for society and students by offering diverse education programs both online and at campuses around the globe.”

Laureate also said it would be assessed by B Lab, a nonprofit organization that certifies companies as so-called B Corps if they meet stringent social and environmental standards.

In the investor letter included in the I.P.O. paperwork, Douglas L. Becker, Laureate’s founder and chief executive, said that becoming a benefit corporation and a B Corp would allow the company to thrive over the long term.

“We recognize that some investors in public companies are highly focused on short-term results, and we hope that it is very clear to them that this is not our approach,” Mr. Becker said. “With the benefit of a long-term view, we will balance the needs of stockholders with the needs of students, employees and the communities in which we operate, and we believe that this approach will deliver the best results for our investors.”

Laureate will have to overcome many hurdles to meet its aspirations and avoid the pitfalls that have given other for-profit education companies a bad reputation. But the fact that Mr. Becker and K.K.R. have decided that Laureate will become both a public benefit corporation and go through the B Corp certification process suggests that these unconventional corporate practices are becoming mainstream.

In a statement, B Lab called Laureate’s decision “another milestone on the path to broad market acceptance of the benefit corporation structure as a useful tool for long-term value creation for shareholders and society.”

Though people often confuse the two, public benefit corporations and B Corps are not the same thing. Benefit corporations are legally incorporated entities, while B Corps are voluntarily certified by the independent organization B Lab.

Yet the forces motivating companies to pursue these new options are similar. In both cases, executives are looking to measure performance by more than short-term profits. That’s why public benefit corporations must identify the greater good they are trying to achieve, and why B Corps measure their social and environmental performance. Some of that may be for good public relations, and some may be the result of sincere altruism.

However, only as a public benefit corporation, not a B Corp, might a company gain new legal protections. There is no case law on the matter yet, but in theory executives and directors of a public benefit corporation would be shielded from certain shareholder litigation. For example, if a benefit corporation decided not to accept a rich acquisition offer, its leaders could claim that selling out would have damaged the company’s mission. In a traditional corporation, such a situation would most likely lead to a lawsuit.

The field still remains nascent.

“This isn’t validation of the model,” said Kyle Westaway, a lawyer who works with B Corps. “That validation will only come after decades of successful performance on the public markets — both financial and social. But this is a monumental step forward proving that big business can be a force for good.”

Other companies are pursuing similar paths.

Etsy, the handmade goods marketplace, went public this year and maintained its status as a B Corp, which it achieved in 2012.

“The certification is an indication of our disposition as a company,” said Chad Dickerson, Etsy’s chief executive.

New Resource Bank is another publicly traded B Corp in the United States. Rally Software was another, until it was acquired. And internationally, companies including Natura in Brazil, Australian Ethical in Australia and Snakk Media in New Zealand are all publicly traded B Corps.

There are also some subsidiaries of conglomerates that are B Corps, including Ben & Jerry’s at Unilever and Plum Organics at Campbell Soup Company.

Finally, there are some companies that say they never want to sell, or go public. Kickstarter recently incorporated as a public benefit corporation and said it intended to stay private indefinitely.

Given that most investors focus on profits, companies like Laureate may have trouble attracting big investors.

“They may face some tough questions on their investor road show,” Mr. Westaway said. “There are some business models where the pursuit of profit and purpose are in tension with each other. But providing quality education is an opportunity for profit and purpose to be aligned.”

Novel corporate structures are no panacea. Already, some of the companies experimenting with their governance are running into age-old business realities.

Since going public, Etsy has come under fire for using overseas loopholes to reduce its tax bills, behavior seen as unbecoming for a company with a conscience.

And Laureate may have a loosely defined aspiration to promote the public good, but it is using a shareholder-unfriendly dual class stock structure, and it is making its fortune in the dubious business of for-profit education.

“B Lab recognizes that for-profit higher education is controversial, and that a number of industry participants have questionable reputations,” B Lab said in a statement. “It is exactly in controversial industries where the need is greatest to distinguish between good, better and best businesses by using rigorous standards of verified overall social and environmental performance, public transparency and legal accountability.”

Mr. Becker said that Laureate’s commitments to social and environmental responsibility would attract shareholders who understood its ambitions.

“We plan to seek out and engage with investors who see the benefit of this approach, and who want to be a part of an enduring, mission-driven company that we believe has strong prospects for long-term growth and the opportunity to help millions of people change their lives through education,” Mr. Becker wrote in his letter. “We use the expression ‘Here for Good’ to explain our commitment to thinking and acting for the long term, and providing a significant benefit to society.”

Whether or not B Corps and public benefit corporations are here for good remains to be seen.